The municipal market was weaker Tuesday amid light to moderate secondary trading activity and an active new-issue calendar, with issuers in New York City and Philadelphia combining to price more than $1.4 billion of debt.
Traders said tax-exempt yields were weaker by six to eight basis points in 10 years, and by three to five basis points on the longer end.
“There is significant weakness in the 10-year sector,” a trader in Los Angeles said. “I’m not really seeing that anywhere else on the curve, but 10-year debt could be off as much as 10 basis points. Past that, I’m seeing it weaker by maybe five basis points at most. There’s some trading, but the focus is on the primary.”
In the new-issue market, Bank of America Merrill Lynch priced for institutional investors $611.7 million of revenue bonds on behalf of Philadelphia International Airport.
This follows Monday’s retail order period on the mostly Assured Guaranty Municipal Corp.-backed debt. Monday was the same day that the last remaining triple-A bond insurer was downgraded to AA-plus by Standard & Poor’s. Assured Guaranty Ltd. encompasses both AGM and Assured Guaranty Corp.
In Tuesday’s institutional pricing, the insured component of the deal was cut to just $78.3 million from $419.4 million during the retail period.
“They definitely cut back pretty majorly on the insured component there, but I’m still not seeing any evidence of insured bonds cheapening in the secondary,” a trader in New York said. “It hasn’t had much impact, if any, on secondary trading to this point.”
Bonds from the $266.1 million Series A mature from 2011 through 2030, with term bonds in 2035 and 2040. Yields range from 1.00% with a 2% coupon in 2011 to 4.70% with a 5% coupon in 2035. Portions of bonds maturing in 2014, 2015, 2017, 2018, 2019, 2021, 2022, 2026, 2029, 2035, and 2040 were backed by AGM.
Yields on uninsured maturities in 2015, 2016, and 2019 were lowered by two basis points at re-pricing, while uninsured 2017 yields were lowered four basis points. Additionally, in the 2035 and 2040 split maturities — which each contained a portion of uninsured and AGM-backed 5% coupon paper — uninsured debt yielded 12 basis points higher than AGM-wrapped bonds. The bonds are callable at par in 2020.
Bonds from the $24.6 million Series B mature from 2011 through 2015, with yields ranging from 1.30% with a 4% coupon in 2012 to 2.19% with a 5% coupon in 2015. Bonds maturing in 2011 will be decided via sealed bid. Uninsured 2015 yields were lowered by two basis points at re-pricing. The bonds are uninsured, and are not callable.
Bonds from the $55.2 million Series C, which is subject to the alternative minimum tax, mature from 2011 through 2018. Yields range from 1.78% with a 4% coupon in 2012 to 3.74% with a 5% coupon in 2018. Yields in 2012 and 2013 yields were lowered by two basis points at repricing, while yields in 2017 and 2018 were raised by five basis points. Bonds maturing in 2011 will be decided via sealed bid. The bonds are uninsured and not callable.
Bonds from the $265.8 million Series D, also subject to the AMT, mature from 2011 through 2025 with a term bond in 2028. Yields range from 1.78% with a 4% coupon in 2012 to 4.96% with a 5% coupon in 2028. Bonds maturing in 2011 will be decided via sealed bid.
Uninsured yields in 2012 and 2013 were lowered by two basis points at repricing, while uninsured yields in 2017 and 2018 were raised by five basis points, and uninsured debt from 2021 from 2025 was increased 10 basis points in yield. The bonds are callable at par in 2020.
The underlying credit is rated A2 by Moody’s Investors Service, A-plus by Standard & Poor’s, and A by Fitch Ratings.
In the session’s largest deal, Morgan Stanley priced $700 million of taxable Build America Bonds for the New York City Transitional Finance Authority. The BABs mature from 2020 through 2025 and in 2031, with term bonds in 2036 and 2038. Yields range from 4.075% in 2020, or 2.65% after the 35% federal subsidy, to 5.572% in 2038, or 3.62% after the subsidy, all priced at par.
The bonds were priced to yield between 145 and 245 basis points over the 10- and 30-year Treasury yields and are subject to a make-whole redemption at Treasuries plus 40 basis points. Bonds maturing in 2031 and 2036 are callable at par in 2020.
The authority also came to market with $100 million of taxable debt, which was competitively sold to Wells Fargo Securities. The bonds mature from 2015 through 2019, with yields ranging from 2.43% priced at par in 2015 to 3.80% with a 3.75% coupon in 2019. The bonds were priced to yield between 94 and 152 basis points over corresponding Treasuries.
The TFA credit is rated Aa1 by Moody’s and AAA by Standard & Poor’s and Fitch.
Municipal Market Data’s triple-A scale yielded 2.48% in 10 years Tuesday, up nine basis points from Monday’s 2.39%, while the 20-year scale yielded 3.43%, up six basis points from Monday’s 3.37%. The scale for 30-year debt increased four basis points to 3.81% from 3.77% Monday.
“The bid side can fade pretty quickly in our market,” said Peter Coffin, founder of Breckinridge Capital Advisors. “As you can see just on an afternoon like today, buyers can get nervous.”
Monday’s triple-A muni scale in 10 years was at 93.7% of comparable Treasuries and 30-year munis were at 96.4%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 106.5% of the comparable London Interbank Offered Rate.
The Treasury market showed losses Tuesday. The benchmark 10-year note finished at 2.64% after opening at 2.56%. The 30-year bond finished at 4.00% after opening at 3.91%. The two-year note finished at 0.40% after opening at 0.36%.